Reassessment made merely on the basis of AIR information was quashed as having been made on invalid assumption of jurisdiction

For the A.Y. 2009-10, the assessee, a transport contractor, filed his return of income declaring a total income of Rs. 1,85,199 u/s 44AE. Reassessment proceedings were commenced on the basis of AIR information that the assessee has deposited a sum of Rs. 10,64,200 in his savings account which deposit was held by the Revenue to be cash credit u/s 68.

In the reasons recorded, the A.O. noticed that the assessee has declared business income of Rs. 1,85,199 and has a savings bank account with Oriental Bank of Commerce, perusal of the bank statement whereof shows a deposit of Rs. 10,64,200 to be in cash out of the total deposits of Rs. 16,11,720.

According to the A.O., the assessee failed to substantiate the cash deposit with any supporting evidence and hence concluded the amounts to be cash credit u/s 68.

HELD

Quietus of the completed assessments can be disturbed only when there is information or evidence / material regarding undisclosed income or the A.O. has information in his possession showing escapement of income. The statutory mandate is that the A.O. must record ‘reason to believe’ the escapement of income. The Tribunal observed that if adverse information may trigger ‘reason to suspect’, then the A.O. has to make reasonable inquiry and collect material which would make him believe that there is in fact an escapement of income. ‘Reason’ is the link between the information and the conclusion. ‘Reason to believe’ postulates a foundation based on information and a belief based on a reason. After a foundation based on information is made, there must still be some reason which should warrant the holding of a belief that income chargeable to tax has escaped assessment. The Tribunal noted that the Supreme Court in M/s Ganga Saran & Sons (P) Ltd. vs. 130 ITR 1 (SC) has held that the expression ‘reason to believe’ occurring in section 147 is stronger than the expression ‘is satisfied’ and such requirement has to be met by the A.O. before he usurps the jurisdiction to reopen an assessment. The Tribunal held that the A.O. did not meet the conditions precedent in the reasons recorded by him and therefore, assumption of jurisdiction by the A.O. to reopen is invalid and consequently reopening was held to be bad in law and was quashed.